Kenny White (Cowri Labs) discusses the necessary conditions for Web3 to succeed in a thought-provoking BlueYard Conversation

**Lightning Talk: The Fundamental Problem with Automated Market Makers in DeFi | Kenny White (Cowri Labs)**

**Video Description**

Welcome to this lightning talk by Kenny White, founder and chief Economist of Shell Protocol. In this talk, Kenny discusses the fundamental flaws in automated market makers (AMMs) and how they are a major problem in the DeFi ecosystem. He also presents a potential solution to address this issue.

AMMs, such as Uniswap, play a crucial role in the DeFi space by providing liquidity for decentralized exchanges. However, Kenny argues that AMMs are fundamentally broken and result in liquidity providers losing money. He backs up his claims with empirical data, revealing that on average, holding tokens in your wallet instead of providing liquidity in AMMs yields better financial returns.

Kenny also highlights the importance of AMMs for the DeFi ecosystem, as they are the backbone of decentralized finance and enable the trading of tokens. Without AMMs, the entire DeFi system would cease to exist. However, the current flaws in AMMs pose a threat to the sustainability of DeFi.

Drawing on his experience in designing and building AMMs, Kenny shares his insights on why AMMs lose money for liquidity providers. He explains the dynamics between the static smart contracts of AMMs and the professional teams of arbitrage traders and bots. Through hypothetical scenarios and real-world examples, he demonstrates how arbitrage traders exploit the inefficiencies of AMMs, resulting in losses for liquidity providers.

Kenny presents an alarming picture of the situation and suggests that DeFi is in an existential crisis, as capital will eventually leave AMMs due to the significant losses suffered by liquidity providers. However, he offers a potential solution to address this problem. He introduces the concept of options and how they can serve as a more profitable alternative for liquidity providers compared to AMMs.

This lightning talk is a must-watch for anyone involved in DeFi and interested in the future of automated market makers. Gain valuable insights from Kenny White and learn about the challenges faced by AMMs in the DeFi ecosystem.

Learn more about Cowri Labs, a leading name in DeFi innovation, at [](

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*Source: [If Web3 is to Work… A BlueYard Conversation](source_link)*

Lightning talk by Kenny White (Cowri Labs) @ If Web3 is to Work… A BlueYard Conversation.

Denver | March 2, 2023

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